AUSiRALIAN HNFORiNVATION SERVICE
1 7 JAN 9 63 Fifth Avenue, New York, N. Y. 10020 ( 2 12) 245-4000
AUSTRALIA AND SOME W4ORLD ECONOMIC ISSUES
A SPEECH BY THE PRIME MINISTER OF AUSTRALIA,
THE RT. HON. MALCOLM FRASER, M. P.
TO
THE ECONOMIC CLUB OF NEW YORK ON 4 JANUARY, 197 รต
It is a great pleasure to be in the U. S. again and have the
opportunity to address this very important group of American
business leaders. I a, also pleased to have the opportunity
to try to collect my bet with Arthur Burns, a bet about which
I think, some of you may know.
When we met in Washington In June, ' 977, he made one of his
few errors of Judgement and bet me that Australia would not
get its inflation rate down below this country's by the June
quarter of 1978. Well, we did. Doing so has not been easy
it never is.
I am sure that the anti-inflationary measures announced in this
country two months ago by President Carter were not easily
arrived at either.
To announce measures of that kind shortly In advance of the
congressional election must have required considerable political
courage. And if I may say so, vie in Australia have greatly
welcomed the policy decisions involved.
The contribution they are making towards stabilizing the value
of the U. S. dollar has as much9 or more significance, for the
rest of the world as it does for the United States. / The
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The absolute magnitude of U. S. trade11eafls that even small changes
in the value of the dollar have large effects on the trade of
smaller countries.
In reflecting upon our own fight against inflation, I must say it
has taken us three years of hard slog to make the progress we
have made.
Throughout that period our policies have been designed to reestablish
the pre-conditlons for sustainable economic growth.
We have approached the task of economic restoration in a mediumterm
framework.
After the economic turmoil through which the Australian economy
passed a few years ago, it takes time to eliminate economic
distortions and imbalances, to provide a settled framework of
expectations within which businessmen and consumers can take
decisions with confidence0
America has recent'y been swept by initi~ t~ ves such as
Proposition 13 deslned to restrin the qrowth of public sector
spending.
l am told that the eections iast November showed that this is a.
political winner across the U. S.
Well, the basic philosophy reflected in Proposition 13 has been
alive and well in Australia for the past three years.
We have rejected the notion that an economy can be kept moving
by continually bioating the public sector,
We have cut the growth in Federal Government expenditures from
the astronomiral figure of 46 per cent in 1974-75, to less than
8 per cent. We still think that's a bit too high.
We have used some of the resultant savings to reduce taxes,
to put spending and decision-making power back into the hands
of businesses and private individuals where it more properly
belongs. / We
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We have legislated to keep Government honest by providing for
indexation of personal income tax.
To encourage continuing economic growth we have provided tax
incentives for private Investment.
We have not been able to pass on all the expenditure savings to
the private sector because we inherited an enormous budget
deficit over 5 per cent of nD. P, We have set about reducing
it, and this financial year the deficit should be about 2.8 per
cent of G. D. P.
We have cut back the rate of growth in our money supply. The
rate of growth of our M3 which incidentally corresponds more
nearly to your M2-has been reduced from around 20 per cent per
annum in the second half of 1975 to 8 per cent in 1977-78.
Let me now tell you briefly about how these policies have been
bearing fruit.
Our major success has been in pushln. q our annual Inflation rate
down from about 17 per cent in 1975 to about seven and a half
per cent. This is lower than the average for the O. E. C. D. area
as a whole and it is trending downwards.
In the light of the -ecent wage decision the Treasury has revise. d
its budget forecast3 and anticipates that inflation will be under
6 per cent by the mlddle of tnis year,
Lower inflation is encouraqinq consumers to spend a higher
proportion of their disposable incomes. And this is reflected
in the fall of the personal savings ratio from its peak of a few
years ago.
Business investment, by both domestic and overseas enterorises,
has been rising strongly, partly because of the greater business
certainty flowing from lower inflation, and also because of some
although not yet enough recovery in corporate profitability.
At the same time as we have been pursuing our anti-inflationary
strategy, we have had a growth record which stands up well
enough by international comparison: I do not want to give the
impression that we think all our economic problems have been
overcome. Vie still have some way to go, and this is most
obvious in the area of unemployment, / There
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There are two reasons~ fo-that -ene generall, one particular.
The general reason is " hat when an e~ or,, ry has been so fractured
as the Australia et-. ntmy wis a few yeifat azo It takes a time
for the steady apo tcaticn 6fpe1: e tZ; out things right,
re-establish cnflaer., e in the. comimun'ity and restore the buoyant
growth of private oe:-' and that is fundamerntal to growing job
opportunities. The particular raaSo is that our own
institutional wage ? ixIng aranements where wages are
determined by an independent ar~~ to~ cor.-imission have notmade
the contribatlorn tney shud tzo :-oroimll recovery.
In most ma-: kets whn przoduct Is in SL-rrius supply, and people
want to sell -more of it, they seek their price. In
the labour imarket hcwever, people fwor-et that economic truism.*
Even though labou~ r is Inl 3ver supply, -union leaders still seek
excessihe wage I nceezaes. This plainy makes it harder to get
people back into Jobs,
Mr. Chairman, what I want to imake E&-a to~ day is that we will
maintain the pvresent steady cast of rpcl;-y untZil these problems
are overcoee Oze alim it-rotz for in-Stanee, to be satisfi-ed
when we hai.: e reduced' lrO; Iaftian tz 5 pe-: ant, but to go well
beyond. Inflation iintreiers-eest ratea, itakes brusliness decisifris
morfe risky and res crsct e-f spenfli nq. It distorts the
re a ti on s hp 6E twe r, w& qe s a nd pvof Its j -Yak-e s domestic business
less competitive in-1e~ n~! 3rUl~ y, ano' social inequities.
Too o ften;. we na%, e S ear Civ_ nrienr ts-& k E Some ilhoderate though
impor-' Lt pr~ qgr'es 3 Z n % atr nor. y to throw away the
ga ins by tirn IA tz~ btdcg* ary p-r omlnoq wh ich cannot
& chi ev~ e a perria,~ eri -lop 1 n tL n e : yxie nt or bring any
lasting eacl-nemc beneflts. The:, e Oa're trncss on Australia who,
now that we ha 7-ade so muchn prcqreSS the fight against
i nf ' Iat Isn we-i d h Ye u, f .3 . w tniav Wea -h ave no intention
of doing sc Suc 6 CCoUrszE 7ay tepWr A-; aiy p , cv Id e some new
jobs, but -it tne Co~ t ef exist," ng. ones -as the rise In
I n f'It Iona~ r y pe atior; whilon i t Lsz. set i eads to a loss of
business an~ d eznrumr confidence, 1; ess Conlumer demand, less
investment both by 65msttic ancl faeivt ': n* 1estors, and hence
fewer jobs.
In the end new jzbs will only be created if our econoi1es groiw
faster than they -nave heen, F3-' that tL happen, the constr& i nts
which are preyierinrq thst -rowth linflatic-n, the imbaiance
between wages and p, ak-ti-, rity, arid te inadequacy of profits
will have to be re-moved. They will! notI be removed by budgetary
puimp priming. / Those
Those who expect. Go,, efnmernts to sti, 11' ate the economy by
ir'v'-asing ( Goveznier1z exren6lttire tat the first sign that
inflation Is fall-inq miunde* stand the nature and the
cure of the ec~ n. itc. anid so: Ilal i ness we are facing.
The fundamental pcint is that the reouction of inflation is
stimulatory of itself It re-estaol shes consumer
confidence and the -rtfidence of domiestic and overseas
investors. Those chanjed attitudes a. ee then accompanied by
higher consumer4 demand and htgher in-veStment arid lower interest
rates. That pro:-ess in tu; rn efeates employment. Thus, I
utterly reject are' tu-estlcn hnat ou po'~ leies show no concern
for unemploy,-aent and the 6nesmployea. On the contrary, it is
because of our conzer-n ftr those thngs that we have persevered
with the policies wniz: n we know ar e es erntial if unemployment
is ever to be redt~ ced,
I believe that -he 1,~ t_ 5, ce of the fiqht against inflation
i s now be tt er ude . toaIP te a ton -yo At the September
meeting of the i M, F. 86a~ 6 of ' ersthe Secretary-General
of the O. E. COD., Einii Van Lerinep, Sa-XG' that: " Unacceptably
high rates of eex,&' Ie~ n the 4udamental obstacle to getting.
back to fal I empz! yriment)
The Annua_ Rept~ i-; nf riAOTJ. 34 liast Saptember stated: " The
in d US t Tia iC caZi AeZ I t fl3 r,~ oa e inwcare-ass ed growth and
de Y e13 pi e~ n s n6 t I~ s ta vb I a~-f ents positions and more
stable ew. rzanqe re6D; yi Jn; hee.-inI nfation ratCes to the
levels exPE;, fiEnzed rwW thEmI d1 960 s,
Just a rew dayis aqo 1. A1U-c& the ~ e. sof rgovernment of seven
d eve a-Pe6C a n J A t -1es _ C -qr-lsee ir the clearest
t rs tnh at ' Irn tz: 5nL cir at,-erny ' ve 01l agreed that
the interda rndaA~ te ct a l.. th of) Industrialised
natiens and thE tM fm zrcreased growth in the
developing o-6 de., rifde0 thet'L irf ! Qti,: n be viqorously combatted
both do-me~ tlaaly arG* 0 n Z~ y
Yt is of the xp~-aj4;-; t6 n1e tr,,-t tniese sentiments should
not remain inerely Sen~ timents; but thtat they should be carried
through to the Tokyo-EEcn~ mic Su'mit in June, and into the
policies of Gavern; ments,
It is somet-lifes Said11 tniat 1i d& MO. f-8ies where there are elections
every few year~ s, it IS d6ifficult tC, pe-, severe with firm) antiinflatioraary
pe'llie-s lipli,. itly -oe even explicitly in some
cases this view is b ased upon cw 6piion of our democratic
electorates. This is an opinlon that. 1 do not share. What our
democratic ele.-torate~ do require its leadership and constant
explanation 5f p& ciles,
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I believe that the public does understand that inflation is an
illness and that recovery from it will give our economies * a
genuine stimulus towards growth and fulil employment.
I believe the public knows that those committed to antiinflationary
policies show more concern for the real well-being
of people than politicians who glibl~ y pursue short-term
stimulatory policies, which will no. t solve economic problems
and will in fact make them worse.
Anti-inflation policies are the best way to shift the balance
back in favour of risk-takers WnHeO of loading the dice against
them. Attacking inflation strengthens cut market-oriented system, which
finds its greatest superiority over " command economies" in its
capacity to handle change. It is that very process of change
which, in the end, delivers the goods and services which people
want, at the prices and In the places at which they want them,
Any ecnmy that is to remain vital anid vigorous must be capable
of adaptation ard change and Gove~ rnments need to structure their
policies acodingly They must a~ commodate the fact that
economies are not static but living entities constantly changing
to meet the chngig preferences of consumers both at home and
abroad. Inflation net only daae growth Vf domestic markets, not only
reduces emplymaQV arnd weakens the basis of our market system,
it quickly flcws trough into the inte~ national economy and
retards the develcpment of world trc~ e, Countries w'ith high
inflation rstes beoime un mel~; their exports fall, theirimpor~
ts rise, and Mytably their currencies depreciate.
It is ironic that the flex~ ible exchange rate which has become
needed princip~ ally betause countrie;' domestic policies have
been inadequate is sometimes heralded as a significant advance
in its own right.
It is true that the flexible exchange rate gives us another
weapon in our econemic armoury. But it should, however, be
recognised that it is a weapon which compensates either for
Government's own NAe O4 Qlcv indequacies or for the
domestic policy inbdequacies of others, / In
In turn Irf' a01 sn an 6t a an ernp Iyrtier' zit i nevi t abl y brln qs
produiCe of1-be? rtS, s tyi~ ca~ d e ana aAr-at the root of the
re-me~ er~ eo? zsm, one~ -the central economic.-
probeso tl Ucirete ountries have looked
t3 i'nnre a-nd mtfe : infor ithei 00-mestic industries.
For example~ we that the E. EKC. countries are
currently spenaL7n; hou $ 05) B41111on a year on a new form
of Protecti nisr" so c&, uiled job subsdijes, These give
effective iroientd~ urst ry aq& nst imports and are a
hi dd ean foc rt, ; i E4 , z 6sid
A fundamentPO r~ t to ! stop enc. oaching protectionism
an d f u rth e-6e ; s d trade ~ s h ed o ut by th e mul0ilateral
tra de r at e But the M. T. M. is to re-n-lse
its praimie;. the re. enc~ k: r-. sz be broadly based.
If the a exerlt a. e -!-srcted o vnaoistrial products they
wil ii,-e-14; rff-nt propo; t-c-in of world trade. These
industria poGtt s to 40 pel, cent OT the exports of
the ma~ j oa : rnde~ uo zr-a2 Ca-ut only 20 per cent of world
trade and nec _ 5ep ev cen. * zr? -, he exports of many
T he i1 n E. eo.; ction of the averazie
ievali of by ht'K-j E Per cent a year spread
itT e n-ed eemen t pl ain1ly could
make a.) I Y a f i r b atu n Cjw; 74s expanding world
inar~ ke ts s ts a Z'r. u t o r .3 ~ ne MlTN m~ ay he to help
check tre r'" Z s n. r T-ufactured goods, but it
Wd ' 3 ti: ta L, hlie t oth of world trade, an~ d it
wou' 0A do t c, tIevr . ' ZIje oY. ectionism in agricuflture.
ups a j. e~ r:. j~ e pa-t cz aK; affected by growing
P t o~, e Fi se . i o s half of our ex ports are
a eicit u-rauzt wnf l. fP , e oeer; esubJected to quotas,
embarqoes9 vafiabia is ar~ d duropngj of surpluses.
F or e x a mp Ia, t h a C. In 197' 8 r' US 12 B iIi o n i n agicultutal
support, a'irncst $ US 5 Billion on direct subsidies on
the expor~ t cf wiheatj d&~ ry D-r~ oaucts ana meat, mucn Or IL
to our tvz ota I 6r aes
If the MOTONO is ~ a a real then it is essential
that tr -de In a4 fCbe ' ijbe-a-. sed, and I am glad that
the UJ, S. A&% J1s t'~ t 6hares thi. s vi~ ew, 1. h e t h er
u S~ ti eC-z"; 5 a f ed n e t rIes
zy 11 t 1-1 ant o, the
r, e~ iO I $ u3 81ii1f1l 0ri toSu
2 O Bl i n C-dp G r e eie ne
i n s3 O) fii o n s vI be C h e~-6roK SO . r e& t decade these
r,~ ai ck. h a t n ESz r 3 L a o riit de
rt~ i Vh Y 4N wr ,4' IC O these n
1e L neo
a. r, d
do a~ r~~ ti: hp I es
t 3. v ise t--A f. OT r
t s e ' 4 E. e. i 1Wm e A . r . ired r i, e
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We in Australia are determined to meet the challenges posed by
our enormous resource potential and the dynamism of our region.
To do so effectively, we shall need the help of overseas capital.
I cannot emphasise too strongly that Australia welcomes overseas
investment to supplement its already high level of capital
formation from domestic sources.
Devel opment of our resource potential is going to require
considerable capital funds from overseas. The total investment
finance required for that purpose over the next three years
could be nearly $ US 7 Billion and a major proportion of this
estimated requirement will need to be sought offshore. Figures
such as these are necessarily speculative but they will give you
an idea of the opportunities which are opening up in Australia
as vie bring our own economy into better shape. Those opportunities
are, we believe, enhanced by the great markets opening up in the
countries immediately to our north.
We are a " natural" importer of long-term capital and are likely
to remain so as far ahead as one can reasonably foresee.
We are determined to Create, through our general economic policies,
conditions which~ are favoueable to the emnloyment of capital in
Australia, whethe-r der-ived from the sayings of our own people or
from overseas investment.
We have laid down clear quidelines for foreign investment and
they are being admliistered flexlibly and fairly. I believe this
general approach is now widely recoonised and supported hy foreign
investors. it Is Incrfeasingly apparent that the chief deterrent
to investment Is not sc much rules or guidelines in themselves,
but any suggestion that those rules may be subject to violent and
arbitrary chanqe. Ours will not be,
Australia has unlimited prospects and offers excellent opportunities
for investors. For its part, the Government is determined to
pursue the steady, sound economic policies which will make the
1980' s a decade of achievement.